DALMIA CEMENT LTD., RAJASTHAN versus COMMISSIONER OF INCOME TAX, NEW DELHI

Citation: [1999] 2 S.C.R. 735 · Decided: 16-04-1999 · Supreme Court of India · Bench: M. SRINIVASAN · Disposal: Appeal(s) allowed

Cited by 1 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

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DALMIA CEMENT LTD., RAJASTHAN 
A 
v. 
COMMISSIONER OF INCOME TAX, NEW DELHI 
APRIL 16, 1999 
[M. SRINIVASAN AND UMESH C. BANERJEE, JJ.] 
B 
Income Tax Act, 1961 
S. 28-Income Tax-Assessee-Agreement dated 24. 7.1962, to sell and 
transfer two cement factories-Supplemental agreement dated 2.11.1962 C 
stipulating in clause 3 that profits and loss arising from the said factories 
after 30.9.1962 to go to the account of.transferee-Actual transfer of assets 
by sale deed dated 30.9.1964 Profits arising out from the two factories after 
agreement to sale hut prior to actual transfer-Liability to pay tax-
Determination of-R~ld, there was diversion of income by overriding title in D 
favour of transferee even before actual accrual-Assessee not able to retain 
the profits after sale agreement-Thus, profits not taxable in the hands of 
aSsessee. 
Ss. 60 and 63--Applicability of. 
Income Tax-Profits of business-Accrual of-Held, profits do not accrue E 
from day to day but at the end of the accounting year. 
Words & Phrases 
"Transfer "-Meaning and scope of in the context of s. 63 of the Income F 
Tax Act, 1961. 
Appellant-ass.essee, by an agreement dated 24.7.1962 agreed to sell 
and transfer its two cement factories to one 'M'. Subsequently, supplemental 
agreement dated 2 •. 11.1962 was entered into between the parties stipulating 
in clause 3 that the profits and loss arising from the two factories subsequent G 
to 30.9.1962 shall go to the account of transferee. The agreement was 
extended from time to time and ultimately, on 30.9.1964, the parties entered 
into a sale deed. Assessee filed his Income-tax return for the Assessment 
periods 1.10.1962 to 30.9.1963 and 1.10.1963 to 30.9.1964 excluding the 
profits arising out of the said two cement factories. The Income-tax Officer 
rejecting the said returns, passed an assessment order by including the H 
735 
736 
SUPREME COURT REPORTS 
(1999] 2 S.C.R. 
A profits arisi01g out from the said two cement factories. The assessee, 
unsuccessfully, challenged the said assessment order before the Appellate 
Assistant Commissioner and the Tribunal. On Reference, High Court 
answered the question in favour of the Revenue. Hence the present appeal. 
On behalf of the appellant-assessee it was contended that High Court 
B was in clear error by reason of its reliance on the fact of physical control 
of the factories rather than to the ownership or the title to the profits which 
was entirely a matter of agreement between the buyer and the seller; the 
High Court has misread and misapplied the law pertaining to accrual of 
profits by reason of the fact that the supplemental agreement itself records 
C that the profits have to be to the accounts of transferee 'M', the High Court's 
finding regarding the applicability of S. 60 of the Act was also totally 
unwarranted having due regard to the language of s. 60 and s. 63 of the 
Income-tax Act, 1961. 
D 
E 
F 
Allowing the appeal, this Court 
HELD : 1.1. The appellant-assessee cannot be taxed for the profits 
arising from the two cement factories situated in Pakistan for the assessment 
period 1.10.1962 to 30.9.1963 and 1.10.1963 to 30.9.1964 as there was 
diversion of income by overriding title in favour of transferee. 
[749-A-B; 738-D-G) 
1.2. The law is well-settled that in the event of their being a diversion 
of income by overriding title, question of the income being assessed in the 
hand of the assessee does not and cannot arise. The finding of the High 
Court that issue of overriding title on the basis of an event which is yet to 
take place, being not available in the facts of the matter under consideration, 
cannot be a correct appreciation of law, since on the date of assessment, the 
event has already taken place and an overriding title has in fact been created 
by operation of law and there is no escape from it. [746-A-C) 
CIT v. Sitaldas Tirathdas, (1961) 41 ITR 367 and Travancore Sugars 
G & Chemical, (1973) 88 ITR 1, relied on. 
Commissioner of Income Tax v. Jhanzie Tea Association, (1989) 178 
ITR 296 and Commissioner of Income Tax v. M.D. Kanoria, (1982) 137 ITR 
137, approved. 
H 
1.3. In the instant case, the parties agreed that the relevant date should .~ 
I 
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DALMIA CEMENT v. C.I.T. 
737 
be 30.9.1962 and not the completion of sale. Clause 3 of the agreement of A· 
which, the High Court made a special reference and interpreted that by 
reason of the contingent event which would be subsequent to the accrual of 

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